Analyst Conference Summary


conference date: October 24, 2012 @ 1:30 PM Pacific Time
for quarter ending: September 30, 2012 (Q3, third quarter)

Forward-looking statements

Overview: Another record strong quarter.

Basic data (GAAP) :

Revenue was $345.3 million, up 4% sequentially from $331.3 million, and up 23% from $281.9 million in the year-earlier quarter.

Net income was $48.2 million, up 9% sequentially from $44.2 million, and up 14% from $42.3 million year-earlier.

EPS (earnings per share) were $0.27, up 12% sequentially from $0.24 and up 17% from $0.23 year-earlier.


Q4 revenue $373 to $385 million. Normalized EPS $0.48 to $0.50.

Conference Highlights:

Revenue growth and higher margins increased for the fourth consecutive quarter. Believes is helping customers solve the right problems, including cloud services, online video, and security.

Non-GAAP "normalized" net income was $79 million or $0.43 per share, up 24% y/y.

Adjusted EBITDA was $157 million, up 28% y/y and 9% sequentially.

There was $25 million of non-cash stock-based compensation in the quarter.

Revenue was strong across all verticals and geographies. Cloud infrastructure grew 22% y/y and made up 58% of revenue in quarter. Content delivery grew 23% y/y.

Media and entertainment was the fastest growing vertical, led by Olympics coverage. Grew 26% y/y.

Enterprise vertical 22% y/y and 6% sequentially.

Commerce vertical grew 21% y/y and 4% sequentially.

High Tech vertical was up 17% y/y but down 1% sequentially.

Public sector was up 20% but down 4% sequentially.

Cash gross margin 81%. GAAP gross margin 68%.

Cash and equivalents balance ended over $1 billion. Cash flow from operations was $141 million. Spent $37 million on share repurchases. $53 million depreciation and amortization. Capital expenditures were $60 million.

Resellers accounted for 22% of sales. Non-U.S. revenues were 29% of sales.

Cost of revenue was $110.0 million. Research and development expense $19.4 million. Sales and marketing expense $75.9 million. General and administrative expense $54.5 million. Amortization of intangibles $5.4 million. Leaving operating income of $80.2 million. Interest and other income $1.2 million. Income taxes $33.3 million.

Expects the federal R&D tax credit to be reinstated in Q4.


Media and Entertainment strongest quarter in 4 years? We have seen a lot of video use including two-screen formats. Consumers seem to love it. We have been driving efficiency in our network to reduce the capital needed to support new growth.

Pricing dynamics for content? We have been managing content delivery pricing well. The improving margins are from better utilization of assets. Long term we believe corporate IT is a bigger market than online media. Cloud infrastructure is 60% of our business, but did not exist five years ago.

How do you scale up from the current 4000 or so customers? More organizations will increase their budgets to the scale where they would buy Akamai products. Partners also help us gain new customers. Kona Site Defender security suite, for instance, will help expand the customer base.

Kona customers? Kona has changed over time. We combined products into a unified interface. Rather than distributed denial of service attack costs being absorbed by individual customers, we now have a more insurance type of pricing so that attacks are more spread out over all customers.

Costs of the network are coming down because of a number of variables, including higher server throughput and lowered electric power costs.

Olympics sense of one-time effect? The Olympics was bigger than expected, which helped us beat guidance. Olympics was a media and security event, with two-screen interactivity, so we were able to sign up new clients. But alone the Olympics were not big enough to be the sole driver of growth upside in the quarter. We also saw strong growth in Q3 software releases and custom public sector projects completed in the quarter. So Q4 seasonal growth may have slipped partly into Q3.

We are not immune to the economic headwinds in Europe, in particular in some of the southern European companies. But generally we are growing very quickly overseas.

Employee growth? We added over 200 employees in the quarter. Spread in R&D, engineering, but mostly in go-to-market and salesforce support.

Content delivery growth has not been very dependent on smartphones because of limited bandwidth. It is the growth of broadband video that is the main driver.

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Disclaimer: Our analyst summaries may include both our condensations of statements made by company representatives and our own analysis. They are not covered by any warranty. We cannot guarantee anything said by company representatives is true. We try not to make errors, but it is possible. Before making or terminating an investment you should always verify any factual basis of your decision.

Copyright 2012 William P. Meyers